Q4 2018 summary

This report identifies key themes driving European Private Equity (PE) deals’ EV/EBITDA multiples on a quarterly basis. The objective is to assist PE investors’ understanding of the drivers behind value trends across regions and sectors, leading to good investment opportunities.

The average valuation for PE backed transactions dropped by over 10% in the quarter and there is also a 5% decline when compared to the same quarter in 2017.

For the first time since Q3 2016, the UK and Ireland region was the hottest in terms of valuation with the average multiple for the quarter also being the highest in the region since Q1 2015. Multiples in the region grew steadily throughout 2018, increasing by 11%.

The Southern region remained flat in Q4 2018, but multiples have reduced by 8% when compared to the same quarter in 2017.

Pricing reductions were seen in all regions except for the UK and Ireland and Southern Europe. The DACH region dropped by 30% in Q4 2018, falling from the joint hottest region in the previous quarter to the sixth hottest in Q4 2018. Multiples in both Central and Eastern Europe and the Nordic region dropped 23% in Q3 2018 with Benelux and France seeing smaller reductions.

Once again, the TMT sector saw the richest pricing, despite a reduction of 15% in the average multiple following the 8% decrease seen in the previous quarter. The drop in Q4 2018 broadly takes the average multiple back to the level seen in the same quarter in 2017.

The only sector to see an increase in multiple in Q4 2018 was Financial Services, which saw an increase of 8% taking the average multiple to its highest since Q4 2015.

The largest volatility in pricing was seen in the Industrials and Chemicals sector with a 13% decline in the quarter taking the average multiple in the sector to its lowest level for two and a half years. Smaller drops in average multiple were seen across Business Services, Consumer, Food and Beverage and Healthcare.

In terms of deal size and for the third quarter in a row, the lowest multiples were seen in the €50-250m deal range with a 2% decrease in average multiple at the upper end of the range and a more volatile decrease of 13% at the lower end of the range.

Deals over €500m continued to represent the highest in terms of multiple with an increase of 7% and 20% when compared to Q3 2018 and Q4 2017 respectively.

Deals valued in the €250-500m range saw the greatest volatility with a drop of 18% seen in the quarter with a smaller decrease of 10% seen in sub €50m transactions.

In this quarter, the Multiples Heatmap focuses on trends seen in the French region and the Financial Services sector.

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